Ernst and Young's "Competing for Growth"
report illustrates aptly what companies are grappling with at this
moment in time.
We couldn't agree more with the outcome of the findings,
but offer our clients with a different vision on the
solution.
We'd certainly look at the accuracy of the forecast and
the necessity of discounting but more importantly, we'd look at the
company's ability to read the market and stay ahead of the game,
the degree to which the company has a dialogue with its consumers
and acts on the insights from that dialogue. We'd look at the
ability of the company to create and drive new growth initiatives
and indeed, we'd look at the effectiveness of
implementation.
We believe that more then ever before, the key to
competing is in customer intimacy and the ability to align the
company around the changing needs of customers.
Tackling a more competitive marketplace.
Companies face a far more competitive and volatile
business environment in the immediate future where margins will be
under pressure and innovation will be critical, a new survey has
found.
Indeed, 85 per cent of the 1,400 senior executives polled
around the world by Ernst & Young as part of its
Competing for Growth study, believed their markets
would become more competitive over the next two years. Margins were
also under pressure, with almost 50 per cent reporting price
erosion and almost 30 per cent noting increased labour and input
costs. And, many noted that markets were more varied and volatile
than before the global financial crisis.
In this uncertain environment, Neil Plumridge, head of
Ernst & Young's advisory practice, says more so than ever
before, directors need to be clear about their organisation's
strategic positioning and what they intend to do better than other
players in the market. The execution of the strategy also needs to
be far more refined.
"It's one thing to have a good strategy document and to
agree on what the strategy is, but if the management team's
capability to execute isn't strong, then the document is
essentially worthless," he says.
"Getting executive alignment is paramount. It's not only
critical to have the CEO agreeing on what needs to be done. You
also need to have the CEO's team fully committed, passionate and
aligned around that strategic agenda. Often this is where things
come undone."
With 71 per cent of the survey's respondents stating that
innovation was becoming increasingly important for survival,
Plumridge advises asking management to provide the
following:
- A benchmarking report of the company's innovation and
ideation (idea creating) processes against that of
competitors.
- A target for future revenue from new products and
services. To counter the erosion of margins from higher costs,
Plumridge says directors should gain an understanding of the
following:
- The price elasticity of the company's products - what
ability does the organisation have to pass price increases on to
customers or do these need to be absorbed?
- How much unintended or poorly thought out price
discounting is taking place - how much margin is being given away
through poor discounting policies and processes?
- Can the organisation increase its share of wallet from
the customers - can it keep customers longer and get them to buy
more?
The study also suggests that responding quickly to rapid
change in a more competitive marketplace will become increasingly
important.
With this in mind, Plumridge notes: "If I were a director,
I would want to understand how well the company does demand
forecasting and the level of accuracy at which the company
outperforms in this important activity. I'd also want to know how
well integrated that forecasting was with key customers and the
timeliness in which information is shared.
"I would also ask when management last did a thorough
review of the safety stock levels - the trigger point at which you
re-order your stock. In this environment, you'd want to have a very
nimble and flexible inventory holding level so that you are not
carrying too much stock... It's about having a lot more science in
the sales forecasting than there has been in the past."
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